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Welcome to Thoughts on the Market. I'm Sean Kim, head of Morgan Stanley's Europe and Asia Technology team. Today we're talking about chipflation when memory chips stop getting cheaper over time and become more expensive and even harder to find. It's Monday, June 8th at 3pm in London. Memory chips are easy to ignore until your laptop slows down, your phone costs more, or your cloud build jobs. Memory is the computer's workspace. It holds whatever the machine needs at that moment, whether that is a web search, a video, a spreadsheet or an AI model Answering a question. DRAM is a fast memory inside servers, PCs and phones. NAND is what stores file in a solid state drive. An HBM or high bandwidth memory is the high performance version sitting right next to the AI chip, helping them move huge amount of data quickly. The last one, hbm, is key because AI has become intensely memory hungry. Memory prices have risen more than six fold over the last year, a sharp break from decades when the cost of DRAM generally kept falling. The pressure is coming from AI infrastructure buildouts. We see server accounting for about 59% of DRAM demand by 2028, up from 37% in 2023. We also see Enterprise Solid State Drive reaching 65% of Nandemand up from 18%. And simply put, data centers are taking a much bigger share of the memory pie. AI memory use is climbing fast at every scale. A newer AI chips uses 7 times more hpm than earlier generations AI a full system use about 65 times more across an entire AI data center build out the jump gets even bigger. HVM has gone roughly from 10 terabytes in 2020 to about 18 petabytes in 2026 orders of magnitude more. This demand is running into supply chain that cannot respond quickly. New memory capacity takes years to build, qualify and ramp up. Supply relief is a process, not a switch and that creates a two tier market. Large AI and cloud buyers can sign long term agreements prepay and secure priority access. Traditional buyers including PC makers, smartphone makers and industrial hardware companies must compete for what remains. This impacts everyday products. In 2027 we see PC memory demand potentially facing a 15% shortfall equivalent to about 58 million PCs. Smartphones could face a 12% shortfall equivalent to about 134 million units. Companies may have to raise prices, cut specifications, delay launches and accept lower profits. The dollar number is striking. We see the memory market growing from about 2200 US$20 billion in 2025 to about $890 billion in 2026 Expectations for 2026 memory revenues rose 71% in just three months. That implies roughly US$600 billion of incremental memory revenues in 2026, more than the annual market for smartphones, PCs or servers, each taken on its own. The broader economy may not see a significant direct inflation shock. We estimate the direct impact on headline CPI at about 0.1% in 2026. But the pressure is showing up in producer prices, in corporate margins, cloud costs, capital spending plans and delayed technology upgrades. AI has turned memory from the cheapest part of the digital economy into one of its most contested resources. These tiny chips most people never think of may now decide what get built or delayed and how much we all end up paying. Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share thoughts on the market with a friend or colleague today.
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